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Right, that's what a non-participating preference is. The first example I gave. Luckily, that's how most preferences work these days.

by SeoxyS 11y ago

StavrosK 11y ago
Your first example made it sound like investors get their money back and that's it for them. In reality, they do participate in the payoff, but only when it exceeds their preference.
floatrock 11y ago
Thanks for the clarification, something I'll have to add. Out of curiosity, how does it work across multiple rounds? I implemented 1x participatory preferences as a simple lifo queue... For non-participatory preferences, are there any complications in calculating the "everybody goes equal from here up" point (50 in the above example) when everyone got in at a different round? Can you have some participatory preferences mixed with non-participatory ones? Is there a good reference for that (at least for a typical case)? Or is this a "call your lawyer" thing?
- SeoxyS 11y ago
  A preference is just a term on the investment. They could be mixed. It can get pretty complicated. Take this scenario: (A) Series A non-participating 5M, (B) Series B non-participating 10M, (C) Series C participating 10M, owns 25%. Founders own 50%, no options pool. Company sells for 30M. - C gets 10M first - B gets 10M next - A gets 5M next - 5M left over, only C is participating; A & B are just floors. - Pro-rata, remaining ownerships ratio of 50:25 = 2:1. - 5M/3*2 = 3.33M goes to founders. - 5M/3*1 = 1.67M goes to Series C investors. Total tallies: - Founder: 3.33M. - Series A: 5M. ROI: 0% - Series B: 10M. ROI: 0% - Series C: 11.67M. ROI: 16% This is mostly for intellectual curiosity, though. If you're a startup founder today… just don't take on any investors who ask for participating preferred. If you're an investor, don't ask for it, it makes you a vulture.

Right, that's what a non-participating preference is. The first example I gave. Luckily, that's how most preferences work these days.

by SeoxyS 11y ago

Right, that's what a non-participating preference is. The first example I gave. Luckily, that's how most preferences work these days.

StavrosK 11y ago

Your first example made it sound like investors get their money back and that's it for them. In reality, they do participate in the payoff, but only when it exceeds their preference.

floatrock 11y ago

Thanks for the clarification, something I'll have to add. Out of curiosity, how does it work across multiple rounds? I implemented 1x participatory preferences as a simple lifo queue... For non-participatory preferences, are there any complications in calculating the "everybody goes equal from here up" point (50 in the above example) when everyone got in at a different round? Can you have some participatory preferences mixed with non-participatory ones? Is there a good reference for that (at least for a typical case)? Or is this a "call your lawyer" thing?

SeoxyS 11y ago
A preference is just a term on the investment. They could be mixed. It can get pretty complicated. Take this scenario: (A) Series A non-participating 5M, (B) Series B non-participating 10M, (C) Series C participating 10M, owns 25%. Founders own 50%, no options pool. Company sells for 30M. - C gets 10M first - B gets 10M next - A gets 5M next - 5M left over, only C is participating; A & B are just floors. - Pro-rata, remaining ownerships ratio of 50:25 = 2:1. - 5M/3*2 = 3.33M goes to founders. - 5M/3*1 = 1.67M goes to Series C investors. Total tallies: - Founder: 3.33M. - Series A: 5M. ROI: 0% - Series B: 10M. ROI: 0% - Series C: 11.67M. ROI: 16% This is mostly for intellectual curiosity, though. If you're a startup founder today… just don't take on any investors who ask for participating preferred. If you're an investor, don't ask for it, it makes you a vulture.